Office of the Historian

FE files, lot 55 D 480

Draft Position Paper Prepared in the Department of State1

secret
[Washington,] December 30, 1954.

Future United States Economic Assistance for Asia

proposed state department position

I. The Problem:

To provide basic principles and an official position to guide the representative of the Department of State on the NSC ad hoc interdepartmental committee to consider future United States economic policy for the free countries of Asia.

II. Objectives:

In order to minimize the danger of increased Communist influence or domination of the free countries of Asia, including Japan, the United States security interests require the achievement of greater economic strength in the region. This requires the reassessment of the size and character of the United States assistance programs in the area. Since the United States possesses a limited capacity to provide economic assistance, certain guiding principles are imperative to the attainment of optimum results.

The long-term objectives of this program should be to assist in making Asia self-supporting at such levels as will help these countries to effectively counter Communist activity. The short-term objectives should be addressed to the stimulation of forces which will contribute to the realization of the long-term objectives.

III. Principles:

The programs and actions adopted for the attainment of the above objectives should be governed by the following principles:

A.
General Principles
(1)
The primary purpose of the program is to combat Communism, and other considerations, where they arise, should be regarded as secondary.
(2)
Future United States economic assistance to Asia should be regarded as only one part of the development of an over-all world program to strengthen the forces of freedom against future Communist advances. This program consists of four basic elements—economic, [Page 1081] military, psychological, and counter-subversive, all of which must be interrelated.
(3)

Each Asian country in fact constitutes a separate and unique economic, political and social problem, although for purposes of analysis they may be grouped into four categories:

(a)
Korea, Formosa and Indochina
(b)
Japan
(c)
Philippines
(d)
Indonesia, Thailand, Malaya, Burma, Ceylon, India, Pakistan, and Afghanistan.

In view of the vast differences which exist between each of these groups, the economic policy of the United States should be directed toward an individual treatment of each country or group of countries, on a bilateral basis in accordance with its circumstances, but subject to certain generalized principles which are set forth herein.

(4)
Individual countries should be assisted wherever possible with a view to achieving a maximum long-range effect on the area as a whole. Short-range programs or specific projects should be minimized where they appear to run counter to the ultimate objectives which are being sought.
(5)
Special consideration should be given to the problem of Japan and the role its industrial and financial resources enable it to play.
(6)
Efforts to retain the Asian countries as a part of the free world will be facilitated by the ability of their non-communist governments to sustain a hope on the part of their peoples that their economic and social condition will be progressively improved. In stimulating these hopes, it should be clearly demonstrated that the primary responsibility for success must fall on the effective efforts of each country individually, and that the United States cannot undertake sole responsibility for the economic development of the region. It should be further recognized that such a program will require considerable time, and that the building up of unattainable aspiration could do more harm than good.
B.
Principles with respect to magnitude*
(1)
United States assistance should be applied to priority needs in the countries of critical importance within the area and not based on the concept of spreading a predetermined amount of money over the region as a whole.
(2)
In the development of policies and programs the sustained economic capabilities of the United States over a period of years should be kept in mind.
C.
Principles with respect to Administration of Aid
(1)
To the maximum extent feasible United States development aid should be made available on a repayment basis.
(2)
The United States should retain full control of the funds disbursed including the use to be made of repayments in local currency.
(3)
Every reasonable effort should be made to encourage and support, more vigorously and effectively, the application of private capital to the development needs of free Asian countries.

IV. Courses of Action

The following courses of action are designed to implement the principles and objectives set forth above:

(1)
The Consultative Committee under the Colombo Plan should be strengthened. This might be done through the establishment of a permanent secretariat whose function would be to develop means for the expansion of healthy intraregional cooperation, trade and development. The United States should contribute a reasonable amount to help defray the expenses of this organization if it should become appropriate to do so.
(2)
The United States should take steps to ensure that the initiative for such expansion of the Colombo Plan should come from the Asian countries which constitute the bulk of the membership in the organization.
(3)
The United States should not encourage and should not participate in the creation of any new multilateral banking or credit institution within this region at the present time.
(4)
The United States should lend its support to the increase of opportunities of countries in this area to trade with each other and with other free world countries: (a) by appropriate measures for membership in the GATT organization; (b) bilateral approaches to countries which maintain restrictions that hamper such trade; and (c) encouragement of removal of such serious restrictions as may exist in the use of sterling by these countries.
(5)
The United States markets for the products of these countries should be expanded and the existing restrictions reduced to the extent it is found feasible.
(6)
Japan
(a)
In order to obtain the maximum contribution from Japan and thus reduce the financial burden on the United States every effort should be made to increase the trading and financial capabilities of that country with other free nations of Asia and by expanding her overseas markets. To this end the United States should consider the appropriate extension of public credit, the expansion of commercial credit for stimulating exports, the improvement of conditions within Japan for private capital, the use of technical assistance, the use of local currency proceeds of agricultural surpluses and the widening opportunities for the investment of Japanese capital.
(b)
The United States should proceed to consummate the contemplated trade agreement with Japan.
(c)
The good offices of the United States should be employed to restore as rapidly as possible better relationships between Japan and the other countries with which she was at war—Philippines, [Page 1083] Indochina, Burma, Malayan States, Australia, New Zealand, and Indonesia.
(7)
The United States should extend the following types of aid and should consider the interrelationship among these types:
(a)
Outright grant aid for direct forces support, defense support and budgetary purposes will have to be extended to those countries which are maintaining armed forces in cooperation with the United States beyond their economic capabilities.
(b)
Aid which is extended to such countries for developmental purposes should be clearly distinguished from the military assistance referred to above, and such aid should be placed on a repayable basis including repayment in local currencies. It is realized that in certain instances, such as Korea, this may not be feasible.
(c)
Technical assistance programs should be continued after a review of their effectiveness in each instance, and wherever possible they should be placed on a matching funds basis.
(d)
With respect to those countries pursuing “neutralistic” policies the United States should review its developmental or technical assistance to such countries to the end that such aid as may be extended shall support the objectives set forth above.
(8)
The United States must give consideration to the impact of the policies and programs adopted hereunder as they may affect our relations with the other less developed areas of the world. Such consideration shall encompass (1) full publicity as to the reasons for our extension of aid to the free Asian countries, and (2) review of United States economic policies towards the other less developed areas with a view to making these policies as consistent as possible throughout the world.
(9)

Magnitude†

United States overall assistance in the Asian area for the fiscal year 1956 shall be at substantially the same level as in the past year. Such a program is within the financial and economic capabilities of the United States and can be supported for a significant period of time if the results prove that the objectives are being achieved.

V. Precautions

In undertaking discussions with respect to any new arrangements certain precautions should be observed.

(1)
The limited capacities of the United States to provide wholesale aid to a region as vast as Asia and the limited capacity of the Asian states to immediately use aid provided militate against any massive United States aid program for Asia at the present time.
(2)
The United States should make clear that its financial contributions to Asian development should be in realistic and reasonable amounts.
(3)
The United States cannot and should not assume sole responsibility for the economic development of the region.
(4)
The United States should not promise continuing financial contributions in connection with any arrangements which might be made, although our continuing interest in the economic development of the area should be made clear.
(5)
Public pronouncements of the United States program should be consistent with anticipated results and should be carefully framed in order to avoid leading the free peoples of Asia to expect more than can be accomplished by a given program.

  1. The source text bears a marginal notation which indicates that it was seen by Robertson. An attached note, dated Dec. 30, by Richard R. Selby of the Policy and Reports Staff indicates that the position paper was to be discussed on Jan. 3, 1955, at a meeting to be attended by Dulles, Hoover, Murphy, MacArthur, Merchant, Robertson, Allen, Jernegan, Holland, Bowie, Waugh, Morton, Nolting, and Scott.

    The source text bears extensive handwritten emendations and revisions, which are not printed.

    ↩
  2. See Table I attached for appropriations covering past three years. [Footnote in the source text. Table I is not printed.]↩
  3. See Table I attached. [Footnote in the source text.]↩